Resilience

Peak oil notes - May 21

Futures prices in New York and London continue to climb this week and are now up some $4 -5 a barrel since early May. New York oil jumped on Wednesday due to an unexpected 7.23 million barrel drop in the US crude inventory and London continued to climb due to the Ukrainian situation and the increasing violence in Iraq, Libya, and Nigeria. New York futures closed Wednesday at $104.07 and London at $110.55 much to the chagrin of many traders who hold that prices are too high given the large crude surplus in the US.

This week’s stocks report had some rather bizarre atmospherics surrounding it. While analysts were expecting a 300,000 barrel decrease in US crude stocks, the API weighed in Tuesday evening with a decrease of 10.3 million barrels which may be a new record for disagreement between the analysts and the API. When the EIA released the official 7.23 million barrel decline, it showed that the API was at least on the right track, if 3 million barrels off. Most of the drop was due to a 658,000 b/d decline in imports to an 18-year low last week. Analysts are wondering if this large drop is just an aberration and the missing barrels will show up next week when a couple of extra tankers arrive or if importers have really cut back for a while.

The major oil story this week came in the LA Times which reported that the EIA is about to issue a report cutting the estimate of the recoverable oil in California’s Monterey Shale from 13.7 billion barrels to 600 million – a 96 percent cut for California and a 60 percent cut in estimated US shale oil reserves.

The Texas Rail Road Commission released production numbers for March. Although the first monthly report on a given month is usually low and is normally raised in subsequent monthly editions, analysts are already noting a growing discrepancy between what Texas reports as its crude and natural gas production has been and the much higher numbers published by the EIA in Washington. The EIA has production climbing at a steady pace in the past year while Texas shows crude + condensate production has plateaued. In its weekly reports, the EIA continues to say US oil production is climbing. This week’s report has production up another 6,000 b/d to 8.43 million b/d.

Natural gas futures jumped on Monday and Tuesday, on forecasts of unusually warm weather across the south which increases the demand for natural gas to power the higher air conditioning load. A month ago the markets were worried about unusually cold weather.

The long expected $400 billion natural gas deal between Russia and China was signed this week. This deal, which has been in negotiation for a decade, came to fruition after the Ukrainian crisis left Moscow worrying about EU efforts to get its natural gas from anywhere but Russia. Moscow obviously made some serious price concessions to Beijing, which has always been the stumbling block, in an effort to close the deal. Moscow says it is pulling its troops back from the Ukrainian border, but for now nobody believes this. Elsewhere the turmoil, none of which is good for oil exports continues apace in Iraq, Libya, Nigeria, and Egypt.